A culture of greed tarnishes the Texas Low Income Housing Tax Credit program

The Low Income Housing Tax Credit program in Texas is sometimes more about the developers making money building housing and less about the needs of people who need housing. Evidence of this fact can be found in the ongoing public corruption trial of housing tax credit developers and elected officials in the Dallas federal district court.

Let me quickly point out that the great majority of housing tax credit developers are honest business people who struggle to do good work. The state staff overseeing the program are first rate and work tirelessly to make the program work. The problem is that the way the program is set up it too often rewards the other type of developer.

Evidence presented in Dallas federal district court thus far depicts developers, elected officials and so-called community activists never expressing any concern about families who need housing. They’re too busy manipulating one another trying make some money on a housing tax credit “deal.” Housing tax credit development comes across as a parasitic, cynical, amoral, perverted, greed driven culture.

The news media has done a good job of laying out the crude shakedowns that local officials are alleged to have engaged in. That is the story the headlines tell and I won’t replay that evidence here.

This scandal was incubated in a mixture of bad local government and flawed housing program competition laws that combined to allow corruption to take root. There are a number of contributing factors:

a city zoning process in Dallas in which the worst aspects of ward politics are in place, giving a single local council member and their planning commission appointee effective veto power over development proposals in their district;

the Dallas City Council that acts on politics and grudges, devoting hardly any effort to understanding even the rudiments of affordable housing policy or community needs;

state law that mandates a scoring system for awarding housing tax credits that gives elected officials effective veto power over affordable applications;

a state housing tax credit program that does little to foster competition among housing developers in the quality and affordability of housing they build and instead rewards political competition among developers.

We need to focus state level reforms on these last two factors. The tax credit program operated by the State of Texas has allowed competing developers to provide a de facto minimum standard product and offered too few incentives to do more. Competition is not directed at producing a better, more affordable housing product. Developers can get away with the minimum requirements in quality and affordability if they can secure the right mix of political support of local officials and community “leaders.”

The financial rewards offered to successful applicants for housing tax credit developments is excessive, so much so that developers are drawn to the Texas housing tax credit program in droves. Competition for the huge payout of securing a tax credit “deal” is feverish. Unable to win through a competition by building a better product, developers turn their competitive energy instead into manipulating the decision making process by drumming up phony community support and making political payoffs to edge out their competition.

The solution must include:

adopting an objective needs-based process for deciding where to build low income housing tax credit developments;

taking individual elected officials out of the position to pick which competing development is built and allowing local governing bodies as a whole input in these decisions only on the basis of specific objective criteria;

taking away veto power of community and homeowners organizations which, when they are not acting on the basis of irrational prejudices, are often the fictional creation or pawns of housing developers; and, above all,

readjusting the scoring system for housing tax credit applications to build serious competition back into the program to challenge developers to spend their time and money building higher quality, more affordable housing for those Texans most in need.

A handful of local officials, and perhaps some developers may be sent to prison in the wake of the latest Texas housing tax credit scandal. But it is the culture of unrestrained greed, operating in a system based on flawed decision making and a lack of adequate competition to provide quality and value, that has taken root among a few in the Texas housing tax credit program that is the true crime.

You have the solutions right — but not sure about the greed issue. Sure, there are developers who do low income housing for wrong motives, but there are much easier ways to make money in real estate (at least in a good economy) and vast majority of LIHTC develpers have their hearts behind what they do. The real solution as you pont out is taking the institutionalized NIMBY factors out of the QAP — signs on property, public official support letters, neighborhood support letters, etc. But this means overcoming years of political institution of NIMBY’ism in TX and can only be done through the Fair Housing lawsuit filed against TDHCA — the politicians will never fix it on their own.

The need of some developers to develop too much, to fast, dominate in a market and always win out in the tax credit competition becomes a corrupting obsession, or as I call it, “the culture of unrestrained greed”. When a developer comes to live for the politics and the lucrative financial rewards of the “deal” and can’t balance that by spending at least as much time focused on conceiving, designing and developing better housing communities, they are infected with “unrestrained greed” and they are headed for trouble.

I made a point of recognizing that this malady does not effect most housing tax credit developers. That is testimony to the moral character of most in the business. The environment of the Texas tax credit program is an ideal incubator for the disease however, and unrestrained greed is contagious. Once a developer comes down with the disease then all of the others operating around the infected developer are in danger of catching it.